Opinion
Case No. 10-13684
10-19-2012
In Re REECE POWERS, III Debtor
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
_______________
Beth A. Buchanan
United States Bankruptcy Judge
Chapter 7
Judge Buchanan
MEMORANDUM OPINION REGARDING DEBTOR'S MOTION TO AVOID
JUDICIAL LIENS AND OBJECTION TO DEBTOR'S EXEMPTION CLAIM
The debtor and his wife transferred title of their residence to the wife's individual name, with the debtor being designated as the transfer on death beneficiary, at a time when the debtor was involved in certain federal court litigation. The debtor and his wife subsequently filed a joint bankruptcy petition, which case was dismissed pursuant to an agreed order with the Office of the United States Trustee. Two days later, the debtor filed the present bankruptcy case. The debtor did not claim any interest in his residence in the original schedules filed in the present case. Some twenty months later, the debtor filed a motion, pursuant to 11 U.S.C. § 522(f), to avoid certain judicial liens against his residence. In connection with the motion to avoid, the debtor amended his schedules to assert a dower interest in his residence and to claim a corresponding homestead exemption. A judicial lien creditor objected to the motion to avoid and the debtor's homestead exemption claim. For the reasons set forth below, this Court concludes that the debtor held no interest in his residence on the petition date upon which to claim an exemption because he failed to reserve any interest in the property when it was transferred to his wife. Because an interest in the property is an essential element to both the motion to avoid and the claim for an exemption, the motion to avoid is denied and the objection to the homestead exemption is sustained.
I. Background
This matter is before this Court on the Motion to Avoid Judicial Liens [Docket Number 42](the "Motion") filed by Debtor Reece Powers, III (the "Debtor"). Judicial lienholders James M. Morris and Dominic's Restaurant at Dayton's (collectively, "DRD") and mortgage lienholder Union Savings Bank each filed responses to the Motion [Docket Numbers 43 and 44, respectively]. In accordance with this Court's request, the Debtor and DRD filed supplemental statements [Docket Numbers 52 and 53](the "Position Statements") and respective responses thereto [Docket Numbers 57 and 58](the "Responses"). The Debtor also filed amendments to Schedules A and C in connection with the Motion, pursuant to which the Debtor asserts a dower interest in his residence and a related homestead exemption [Docket Number 51](the "Amended Schedules"). DRD objects to the Debtor's asserted homestead exemption [Docket Number 52](the "Exemption Objection").
The Debtor filed a Motion for Extension of Time to Respond to DRD's Position Statement [Docket Number 54], which DRD opposed [Docket Number 55]. While the Debtor requested a seven day extension of time, the Debtor's Response was filed only one day past the original due date. As such, this Court finds that no prejudice has been suffered by DRD as a result of the Debtor's late filing. Accordingly, the Debtor's Motion for Extension of Time to Respond is hereby granted.
The history between the Debtor and DRD precedes this Court's involvement in the present case and warrants a brief discussion. In April of 2009, DRD filed a complaint and request for a temporary restraining order in the United States District Court for the Southern District of Ohio (the "District Court") alleging service and trademarks infringement by the Debtor and other individuals in connection with the opening of a restaurant by the defendants (the "Infringement Litigation"). Dominic's Rest. of Dayton v. Mantia, 2009 U.S. Dist. LEXIS 120098 at *2-3, 2009 WL 4680223 at *1 (S.D. Ohio Dec. 3, 2009). During the course of the Infringement Litigation, the Debtor and the other defendants were found to be in contempt of certain temporary restraining orders issued by the District Court. Id. On August 12, 2009, the District Court awarded DRD $19,725 for its attorneys' fees and costs as a contempt sanction against the Debtor and the other defendants. Dominic's Rest. of Dayton v. Mantia, 2009 U.S. Dist. LEXIS 76939 at *5, 2009 WL 2473780 at *2 (S.D. Ohio Aug. 12, 2009). DRD filed a certificate of judgment in the Common Pleas Court of Butler County, Ohio on August 26, 2009 relating to the contempt award.
At the time that DRD filed its certificate of judgment, the Debtor and his wife, Nancy A. Powers ("Mrs. Powers"), jointly owned their residence, which is located in Butler County at 7142 St. Ives Place, West Chester, Ohio (the "Property"). Docket Number 30, Exhibit D. On September 8, 2009, the Debtor and Mrs. Powers recorded a deed transferring ownership of the Property to Mrs. Powers with general warranty covenants. Docket Number 30, Exhibit E. The deed further provides that the Property will transfer upon the death of Mrs. Powers to the Debtor, as the transfer on death beneficiary, pursuant to Ohio Revised Code § 5302.22(B). Id.
The deed was executed on August 3, 2009 but was not recorded with the Butler County Recorder until September 8, 2009.
On February 8, 2010, the Debtor and Mrs. Powers filed a joint Chapter 13 petition in this court, being case number 10-10703. The Powers voluntarily converted their Chapter 13 case to a Chapter 7 case on March 19, 2010. The Office of the United States Trustee, however, filed a motion to dismiss the Powers' Chapter 7 case pursuant to Section 707(b) of the Bankruptcy Code. The Powers' Chapter 7 case was subsequently dismissed on May 25, 2010 per an agreed order between the Powers and the Office of the United States Trustee. Two days later, the Debtor filed the present case as an individual Chapter 7 petition. The Debtor received a discharge on January 18, 2011.
While the Debtor's first bankruptcy case was pending, the District Court granted a default judgment against the Debtor and the other individual defendants in the Infringement Litigation for failure to follow court orders relating to discovery deadlines, identification of witnesses and participation in a mandatory conference. Dominic's Rest. of Dayton v. Mantia, 2010 U.S. Dist. LEXIS 39636 at *17-18, 2010 WL 1258111 at *6-7 (S.D. Ohio Mar. 25, 2010). The District Court considered the impact of the suggestion of stay filed by the Debtor in the Infringement Litigation and concluded that "[w]hile an assessment of monetary damages against [the Debtor] may be prevented by application of the automatic bankruptcy stay, injunctive relief regarding the use of the property in the commission of a tort is not. Therefore, the automatic bankruptcy protection provided by the Bankruptcy Code will not be applied to [the Debtor] in this case so long as monetary damages are not awarded against [him]." Id. at *7, 2010 WL 1258111 at *3. In a separate order, the District Court granted DRD's fourth motion for contempt based on continued infringement on DRD's marks and again enjoined the operation of the restaurant. Dominic's Rest. of Dayton, Inc. v. Mantia, 683 F.3d 757, 760 (6th Cir. 2012). The Debtor appealed arguing that the automatic stay precluded further contempt proceedings against him. Id. Finding that the Debtor's appeal was not rendered moot by the dismissal of his first bankruptcy case because the Debtor's second bankruptcy case reactivated the automatic stay, the Sixth Circuit Court of Appeals affirmed the judgment of the District Court holding that the Debtor's commission of a tort by infringing on DRD's marks was not protected by the Bankruptcy Code. Id. at 761.
Unless otherwise indicated, the terms "Bankruptcy Code," "Section" and "§" refer to Title 11 of the United States Code, 11 U.S.C. § 101 et seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8.
More than twenty months following the commencement of the present case, the Debtor filed the Motion by which the Debtor seeks to avoid the judicial liens (the "Judicial Liens") of DRD, National City Bank, Freeport Press, Inc. and Miami Valley Broadcasting (collectively, the "Judgment Creditors") pursuant to Section 522(f) of the Bankruptcy Code. Union Savings Bank, which had previously been granted relief from stay with respect to the Property [Docket Number 36], filed a protective response to the Motion objecting to the extent that the Debtor was attempting to affect Union Savings Bank's mortgage by means of the Motion. DRD also filed a response to the Motion asserting that the Motion should be denied for multiple reasons. First, DRD notes that the Debtor's schedules do not even reflect that the Debtor has an interest in the Property or that he claims an exemption for the Property. Second, DRD points out that the Motion is deficient because there is no value given for the Debtor's asserted interest in the Property so this Court cannot determine if the liens on the Property exceed the value of the Debtor's interest in the Property as required by Section 522(f). Finally, DRD argues that the Motion should be denied because the Property was fraudulently transferred to Mrs. Powers.
A hearing on the Motion was held on March 14, 2012 (the "Hearing"). Respective counsel for the Debtor, Union Savings Bank and DRD were present at the Hearing, as was the Chapter 7 Trustee. During the Hearing, the Debtor was instructed to correct service of the Motion on Freeport Press, Inc. and to file certain amendments to schedules discussed by the Debtor at the Hearing on or before April 13, 2012. The parties were further directed to file position statements on or before May 14, 2012 and responses thereto on or before June 13, 2012 with respect to whether this Court should rule on the Motion or hold its ruling pending a determination by this Court or the State Court in the pending foreclosure action regarding the fraudulent transfer allegation raised by DRD in its response to the Motion.
The Chapter 7 Trustee has been named as a party defendant in a state court foreclosure action (Wetherington Community Assn. v. Powers, Butler County Court of Common Pleas, Case No. CV2011 11 3929) involving the Property because he has not abandoned the bankruptcy estate's interest in the Property. Docket Number 47.
The Debtor timely filed the Amended Schedules asserting a dower interest in the Property, which the Debtor valued at $15,135.14, and claiming a $21,525 homestead exemption with respect to such interest pursuant to Ohio Revised Code § 2329.66(A)(1). DRD filed the Exemption Objection as part of its Position Statement.
This Court stated at the Hearing that objections (if any) to the Debtor's claim for an exemption in the Property may be raised within the parties' position statement rather than by way of a separate objection.
II. Jurisdiction
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This is a core proceeding by virtue of 28 U.S.C. §§ 157(b)(2)(B), (K) and (O).
III. Legal Analysis
A. Procedural Issues
As an initial matter, this Court notes that the Motion and the Amended Schedules suffer from various procedural deficiencies. As pointed out by this Court at the Hearing and noted in the DRD's Position Statement and Response, the Debtor failed to serve the Motion on Freeport Press, Inc.—a party directly affected by the relief requested in the Motion—at the address specified in Freeport Press, Inc.'s proof of claim. Fed. R. Bankr. P. 9014(b); LBR 4003-2 & 9013-3(b). Notwithstanding a notification of deficiency from the Clerk (and reference to the deficiency by DRD in its Position Statement and Response), the Debtor has yet to file a signed declaration concerning the Amended Schedules. Fed. R. Bankr. P. 1008. Moreover, the Amended Schedules were not properly served on all creditors. Fed. R. Bankr. P. 1009(a)(requiring notice of amended schedules be given to the trustee and any entity affected by the amendment) & 4003(b)(1)(providing any party in interest may object to an amended list of property claimed as exempt within thirty days after the amendment is filed). The foregoing procedural issues, however, are not determinative for the reasons discussed below. B. Substantive Issues
The Debtor seeks to avoid the Judicial Liens of the Judgment Creditors, pursuant to Section 522(f)(1)(A) of the Bankruptcy Code, on the grounds that the Judicial Liens "impair the interest and exemption of the Debtor in the [P]roperty." Motion ¶ 9. In support of the Motion, the Debtor filed the Amended Schedules asserting a dower interest in the Property and a related homestead exemption. DRD maintains that the Debtor is not entitled to claim an exemption of the Debtor's asserted dower interest in the Property and, therefore, has no basis to avoid the Judicial Liens pursuant to Section 522(f).
The Motion does not directly mention Section 522(f)(1)(A) as the statutory basis for the relief requested by the Motion; however, the Debtor's Position Statement and Response do reference Section 522(f)(1)(A).
Pursuant to the Motion, the Debtor seeks entry of an order providing that the Judgment Liens are avoided and will be removed "from the real estate located at 7142 Saint Ives Place, West Chester, Ohio 45069" upon the filing of the order with the Butler County Recorder's Office. It is unclear from the Motion whether the Debtor is requesting an order avoiding the Judgment Liens as against the Debtor's asserted interest in the Property or as against all interests in the Property. To the extent that it is the latter, this Court has no jurisdiction to avoid the Judgment Liens as to any non-debtor party's interest in the Property. See In re Coressel, 265 B.R. 887, 891 (Bankr. N.D. Ohio 2001). Therefore, any order entered by this Court with respect to the Motion would have no effect on the Judgment Liens to the extent that such liens attach to interests of parties other than the Debtor—including any interest that Mrs. Powers may have in the Property. Id. (avoiding a judgment lien against the debtor-wife's interest in real property pursuant to Section 522(f) but stating that the judgment lien was not avoided to the extent that judgment creditor held a judgment lien against the non-debtor husband's interest in the subject property).
Section 522(f)(1) of the Bankruptcy Code provides in relevant part that:
Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—11 U.S.C. § 522(f)(1)(A).(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5).
1. Burden Of Proof
As a general rule, a debtor bears the burden of proof by a preponderance of the evidence on every element of Section 522(f). In re Allen, 2008 Bankr. LEXIS 4094 at *3, 2008 WL 6178248 at *1 (Bankr. N.D. Ohio Oct. 31, 2008). Conversely, a party objecting to an exemption claimed by a debtor typically has the burden of proving that the exemption is not properly claimed. Fed. R. Bankr. P. 4003(c).
The subject of burden of proof becomes less clear where a lien creditor challenges a debtor's claimed objection in the context of defending a Section 522(f) motion. Some courts hold that the lien creditor bears the burden of challenging the validity of the exemption asserted in connection with the Section 522(f) motion. In re Belding, 2010 Bankr. LEXIS 4968 at *6, 2010 WL 5376295 at *2 (Bankr. D. Vt. Dec. 23, 2010)(citing In re Herd, 176 B.R. 312, 314 (Bankr. D. Conn. 1994)("finding that the creditor's objection to the debtor's § 522(f) motion was identical to its objection to the debtor's claim of homestead exemption, and therefore that the creditor carried the burden of proof on both matters")); In re Mendez, 2010 Bankr. LEXIS 3681 at *4 (Bankr. C.D. Cal. Oct. 25, 2010)(citing Fed. R. Bankr. P. 4003(c) and (d)). Other courts adopt some version of a shifting burden approach. Compare In re Morgan, 149 B.R. 147, 152 (B.A.P. 9th Cir. 1993)(noting that the lien creditor bears the initial burden of proving the exemption is not properly claimed pursuant to Fed. R. Bankr. P. 4003(c) but "[o]nce the lien creditor has come forward with evidence questioning the validity of the exemption, . . . the debtor may need to produce evidence supporting the claim of exemption to persuade the court to allow the lien avoidance"), with In re Maylin, 155 B.R. 605, 614 (Bankr. D. Me. 1993)(holding that the debtor bears the burden of proof on all elements essential to Section 522(f) "[b]ut, consistent with § 522(l), Rule 4003 and Taylor [v. Freeland & Kronz, 503 U.S. 638 (1992)], the debtor can establish entitlement to an exemption, prima facie, by listing it specifically on his or her . . . schedules, designating clearly the basis for each exemption claimed. In the face of such a showing, the burden shifts to the creditor challenging the exemption as part of its § 522(f) defense to prove that the exemption claim is not proper." (internal citations omitted)). In this case, this Court need not decide the applicable burden of proof because the Debtor does not prevail even if the creditor solely bears the burden.
But see In re Morgan, 149 B.R. at 151-52 (holding that an "exemption-by-default" under § 522 (l) does not satisfy the debtor's burden of showing entitlement to an exemption under § 522(f)).
2. DRD's Arguments Regarding Debtor's Entitlement To Claim An Exemption In The Property
DRD raises multiple arguments as to why the Debtor is not entitled to claim an exemption with respect to the Property, which fall under the following general legal theories: (1) judicial estoppel; (2) bad faith; and (3) fraudulent transfer. a. Judicial Estoppel
DRD argues that the doctrine of judicial estoppel bars the Debtor from exempting any interest in the Property. As described by the Sixth Circuit Court of Appeals, judicial estoppel prohibits a party in a bankruptcy case from "(1) asserting a position that is contrary to one that the party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position, whether as a preliminary matter or as part of a final disposition." White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472, 476 (6th Cir. 2010)(quoting Browning v. Levy, 283 F.3d 761, 775-76 (6th Cir. 2002)(internal quotations omitted). Accordingly, the doctrine of judicial estoppel "generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase" thereby "preserv[ing] the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship." Id. (citations and internal quotation marks omitted).
DRD contends that judicial estoppel applies in this case because the Debtor did not claim an interest in the Property when he filed his initial schedules—which the Debtor declared to true and correct to the best of his knowledge, information and belief under penalty of perjury at the time of filing—and, therefore, he is now precluded from asserting a different position in the same bankruptcy proceeding almost two years later for purposes of avoiding DRD's Judicial Lien. This Court concludes that the requisite elements of judicial estoppel are not present in this case.
First, there is no "prior proceeding" or "prior court" under the facts of this case. The Debtor's initial failure to assert and then subsequent assertion of an interest in the Property (and the corresponding exemption) all occurred within the same proceeding before the same court. Moreover, while it may appear that the Debtor is taking a contrary position regarding his interest in the Property, DRD does not identify any "contrary position" adopted by this or any other court. The Chapter 7 Trustee has not abandoned any interest that the Debtor's bankruptcy estate may have with respect to the Property nor has this Court entered any orders explicitly or implicitly adopting the Debtor's initial assertion that he has no interest in the Property.
As noted by the court in In re Stiltner when presented with a similar judicial estoppel argument in response to a debtor's amendment to his schedules to claim an exemption in a medical malpractice claim that the debtor failed to list in his original schedules:
Both the Debtor's initial failure to list the potential asset and his subsequent amendment to exempt the asset took place in the same proceeding—this bankruptcy case—and before the same court. Moreover, the court questions whether the claim of exemption in an asset after initially failing to list the asset constitutes the assertion of a "contrary" position as contemplated by the judicial estoppel doctrine, any more than any amendment would represent a contrary position.2012 Bankr. LEXIS 2204 at *10, 2012 WL 1805423 at *4 (Bankr. E.D. Tenn. May 17, 2012)(citations omitted).
The cases relied upon by DRD in support of its judicial estoppel argument are distinguishable from the facts of this case. In White v. Wyndham Vacation Ownership, Inc. and the other cases cited by DRD, the courts applied judicial estoppel to determine whether a debtor should be prohibited from pursuing a cause of action in a non-bankruptcy proceeding where the debtor had failed to timely disclose the existence of such cause of action in the debtor's bankruptcy proceeding. See In re Stiltner, 2012 Bankr. LEXIS 2204 at *10-11, 2012 WL 1805423 at *4. These cases did not involve a situation—such as is present in this case—where a debtor is seeking to disclose an additional asset in the debtor's bankruptcy case and claim a corresponding exemption. Even though in this case the Debtor seeks to leverage the newly disclosed asset and claimed exemption for purposes of the Motion, the fact remains that neither this Court nor any other court has taken any position regarding the Debtor's interest in the Property or entitlement to an exemption. As such, the facts of this case do not give rise to the theory of judicial estoppel; rather, DRD's argument sounds more in the theory of bad faith. b. Bad Faith
Debtors are permitted to amend their schedules "as a matter of course at any time before the case is closed." Fed. R. Bankr. P. 1009(a). "Although, Rule 1009(a) is liberal, it does not afford debtors a completely unfettered right to amend deficient schedules and statements." In re Robinson, 292 B.R. 599, 608 (Bankr. S.D. Ohio 2003)(citations omitted). "Bankruptcy courts may deny debtors the privilege of amending their list of exempt assets where the debtor has acted in bad faith; where a party in interest may be prejudiced; and where exceptional circumstances so warrant." In re Falconer, 79 B.R. 283, 288 (W.D. Mich. 1987)(internal citations omitted); see also In re Robinson, 292 B.R. at 608 (collecting cases). A finding of bad faith is based on the totality of the circumstances. In re Opra, 365 B.R. 728, 743 (Bankr. E.D. Mich. 2007).
DRD alleges that the Debtor and his wife conspired to protect the Property from the claims of creditors. DRD notes that the Property was transferred into Mrs. Powers' sole name shortly after DRD filed its Judicial Lien against the Property. Thereafter, the Debtor and Mrs. Powers filed a joint bankruptcy petition, which they dismissed and then two days later the Debtor filed an individual petition for bankruptcy relief. Initially, the Debtor failed to disclose any interest in the Property in this bankruptcy case. Almost two years later, the Debtor asserts a dower interest in the Property for purposes of avoiding the Judicial Liens. DRD concludes that these actions reflect a continuing effort by the Debtor to shield the Property from the rightful claims of his creditors.
These factors very well may lead to a conclusion that the Debtor is acting in bad faith and should be denied the right to claim an exemption in the Property and thereby avoid the Judicial Liens. See In re Lafferty, 469 B.R. 235 (Bankr. D.S.C. 2012)(denying a Section 522(f) motion to avoid a judicial lien where the court concluded that the debtors were not entitled to claim a homestead exemption under the doctrine of unclean hands based on the debtors' actions prior to and during their bankruptcy, including transfers of the property and inconsistent statements regarding residency, which indicated an effort to hinder, delay or defraud creditors). However, a complete understanding of a debtor's motives and an assessment of a debtor's credibility are particularly important in making a determination of whether a debtor has acted in bad faith. In re Robinson, 292 B.R. at 611 (assessing credibility and demeanor of debtor and other witnesses); In re Opra, 365 B.R. at 744-45 (same). The record in this case is not sufficiently developed for this Court to make such a determination at this time nor is it necessary to do so for the reasons stated below. c. Fraudulent Transfer
DRD cites numerous cases regarding fraudulent transfers to illustrate its conclusion that the transfer of the Property to Mrs. Powers is a fraudulent transfer. With the exception of In re Downs, see infra, the cases relied upon by DRD either illustrate situations where transfers of property were found to be fraudulent in general or discuss the disallowance of mortgages found to be fraudulent for purposes of determining which liens should be included in the impairment calculation under Section 522(f). The only case cited by DRD that makes a connection between the fraudulent transfer of property by a debtor and the debtor's entitlement to an exemption is In re Downs.
Ransier v. McFarland (In re McFarland), 170 B.R. 613 (Bankr. S.D. Ohio 1994); Ag Credit, ACA v. Walton (In re Walton), 165 B.R. 610 (Bankr. N.D. Ohio 1994); Profeta v. Lombardo, 600 N.E.2d 360 (Ohio Ct. App. 1991).
In re Jones, 305 B.R. 276 (Bankr. S.D. Ohio 2003); In re Brantz, 106 B.R. 62 (Bankr. E.D. Pa. 1989).
The debtors in In re Downs were parties in certain state court litigation involving the Village of Montpelier (the "Village"). 205 B.R. 93, 94 (Bankr. N.D. Ohio 1996). Following entry of a judgment by the state court against the debtors and shortly before filing bankruptcy, the debtors quitclaimed their residence to a relative. Id. at 94-95. The chapter 7 trustee filed an adversary proceeding and successfully avoided the transfer of the property as a fraudulent transfer. Id. at 95. Thereafter, the chapter 7 trustee and the Village objected to the homestead exemptions claimed by the debtors with respect to the recovered property. Id. at 94. The chapter 7 trustee and the Village argued that Section 522(g) prevents a debtor from claiming an exemption in property recovered by the trustee if the debtor voluntarily transferred the property or if the debtor concealed the recovered property. Finding that the debtors voluntarily transferred the property prepetition with the actual intent to defraud the Village and further noting that the chapter 7 trustee had recovered the property for the benefit of the estate, the court sustained the objections and denied the debtors' claimed homestead exemption. Id. at 97.
Section 522(g) provides that:
Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510 (c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—11 U.S.C § 522(g).(1) (A) such transfer was not a voluntary transfer of such property by the debtor; and
(B) the debtor did not conceal such property; or(2) the debtor could have avoided such transfer under subsection (f)(1)(B) of this section.
While DRD makes a plausible argument that the transfer of the Property to Mrs. Powers was a fraudulent transfer, as stated by the Trustee at the Hearing and reflected in his application to employ counsel [Docket Number 47], the Trustee has not yet decided whether to bring an action to avoid the transfer. Moreover, DRD has not made a request to this Court for derivative standing to bring a fraudulent transfer action on behalf of the estate. See, e.g., In re Pagnini, 2010 Bankr. LEXIS 187 at *6, 2010 WL 383941 at *2 (Bankr. D. Mass. Jan. 26, 2010), aff'd, Premier Capital, Inc. v. Pagnini (In re Pagnini), 433 B.R. 455 (B.A.P. 1st Cir. 2010)(noting that "the trustee has the exclusive right to bring an action for fraudulent conveyance during the pendency of the bankruptcy proceedings")(quoting Hatchett v. United States, 330 F.3d 875, 886 (6th Cir. 2003)(internal quotation marks omitted)). Accordingly, the issue of whether the transfer of the Property to Mrs. Powers is avoidable as a fraudulent transfer is not properly before this Court. Id. at *9, 2010 WL 383941 at *3 (finding that the fraudulent transfer of property is voidable and not void ab initio).
Because this Court does not reach the issue of whether the transfer of the Property is a fraudulent transfer, this opinion has no preclusive effect as to any future action brought in this Court or in the State Court regarding the avoidance of such transfer nor is it intended to influence the Chapter 7 Trustee's evaluation of whether to pursue such an action.
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3. Debtor's Interest In The Property And Claimed Homestead Exemption
The Debtor asserts in the Motion that he "transferred his interest in the [Property] to his wife, and he obtained an interest by virtue of his dower rights or as a transfer on death beneficiary" for which he is entitled to claim a homestead exemption pursuant to Ohio Revised Code § 2329.66(A)(1). This Court disagrees and concludes that the Debtor had no interest in the Property on the petition date upon which to claim an exemption.
In Ohio, a dower interest is defined as "an estate for life [of one spouse] in one third of the real property of which the [other spouse] was seized as an estate of inheritance at any time during the marriage," provided that a spouse has not relinquished or been barred from his or her dower interest. Ohio Rev. Code Ann. § 2103.02 (2012); see also Standard Federal Bank v. Staff, 168 Ohio App. 3d 14, 20 (Ohio Ct. App. 2006)("In other words, either spouse is entitled to a one-third dower interest in real property unless it has been relinquished or barred."). Ohio law further provides, however, that when a grantor conveys real property by deed the grantor is deemed to convey whatever interest the grantor had in the real property, unless the deed clearly indicates otherwise. See Ohio Rev. Code Ann. § 5301.02 (2012)(providing in pertinent part that "every grant, conveyance, or mortgage of lands, tenements, or hereditaments shall convey or mortgage the entire interest which the grantor could lawfully grant, convey, or mortgage, unless it clearly appears by the deed, mortgage, or instrument that the grantor intended to convey or mortgage a less estate" (emphasis added)); Ohio Rev. Code Ann. § 5302.04 (2012)(providing that "[i]n a conveyance of real estate or any interest therein, all rights, easements, privileges, and appurtenances belonging to the granted estate shall be included in the conveyance, unless the contrary is stated in the deed, and it is unnecessary to enumerate or mention them either generally or specifically" (emphasis added)); Ohio Rev. Code Ann. § 5301.071(A) (2012)(providing that "[n]o instrument conveying real property, or any interest in real property . . . shall be considered defective nor shall the validity of that conveyance be affected because . . . [t]he dower interest of the spouse of any grantor was not specifically released, but that spouse executed the instrument in the manner provided in section 5301.01 of the Revised Code").
The Debtor and Mrs. Powers signed a deed transferring ownership of the Property to Mrs. Powers with general warranty covenants. The deed further provides that the Property will transfer upon the death of Mrs. Powers to the Debtor, as the transfer on death beneficiary, pursuant to Ohio Revised Code Section 5302.22(B). The deed did not expressly state or otherwise clearly indicate that the Debtor intended to retain a dower interest in the Property. Therefore, pursuant to Ohio Revised Code Sections 5301.02 and 5302.04, the Debtor conveyed his entire interest in the Property to Mrs. Powers, including his dower interest. In addition, the transfer on death provision in the deed suggests that the Powers intended for the Debtor to obtain a fee interest in the Property upon the death of Mrs. Powers rather than to merely hold a dower interest in the Property. Because the Debtor did not expressly reserve his dower interest when the parties transferred the Property to Mrs. Powers, the Debtor retained no interest in the Property upon which to assert an exemption. See Simon v. Citimortgage, Inc. (In re Doubov), 423 B.R. 505, 514 (Bankr. N.D. Ohio 2010)(finding that the debtor did not have an interest in her residence on the petition date because she had previously quitclaimed her interest in the property to her husband and further finding that the debtor could not claim a homestead exemption based on dower interest in the property since "she did not have any such interest because she did not reserve it to herself when she executed the quitclaimed deed" (citing Whitt v. Whitt, 2003 Ohio App. LEXIS 2743 at *7, 2003 WL 21384590 at *3 (Ohio Ct. App., June 13, 2003)).
Nor does the designation of the Debtor as the transfer on death beneficiary create any basis on which the Debtor may claim an interest and corresponding exemption in the Property. Ohio law expressly provides that "[t]he designation of a transfer on death beneficiary has no effect on the present ownership of real property, and a person designated as a transfer on death beneficiary has no interest in the real property until the death of the owner of the interest." Ohio Rev. Code Ann. § 5302.23(B)(4). Therefore, the Debtor has no interest in the Property based on his designation as a transfer on death beneficiary in the deed that would entitle him to assert an exemption pursuant to Ohio Revised Code § 2329.66(A)(1).
IV. Conclusion
The Debtor must have an interest in the Property as a prerequisite to avoiding the Judicial Liens pursuant to Section 522(f) and to claiming an exemption in the Property pursuant to Section 522(b)(2) and Ohio Revised Code Section 2329.66(A)(1). For the foregoing reasons, this Court concludes that the Debtor had no such interest in the Property on the petition date. Accordingly, the Motion is DENIED and the Exemption Objection is SUSTAINED.
IT IS SO ORDERED. Copy to: Debtor
David J. Smith, Esq., attorney for Debtor
James M. Morris, Esq., attorney for Dominic's Restaurant
Cara Hurak, Esq., attorney for Union Savings Bank
Elliott Polaniecki, Esq., Chapter 7 Trustee
NATIONAL CITY BANK
6 North Main Street
Dayton, OH 45412
THE FREEPORT PRESS, INC.
121 Main Street
Freeport, OH 43973
THE FREEPORT PRESS, INC.
c/o Richard W. Arnold, Esq.
Day Ketterer Ltd.
200 Market Avenue N., Suite 300
Canton, Ohio 44702
MIAMI VALLEY BROADCASTING CORPORATION
1414 Wilmington Avenue
Dayton, OH 45420